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NAFTA Ruling Raises Environmental Questions

(Mexico ordered to pay California-based Metalclad $16.7-million after municipality blocks plans for a hazardous waste dump)
Parliamentary Bureau
Friday, September 1, 2000
Toronto Globe and Mail

Ottawa - Mexico has lost a major NAFTA investor lawsuit that could have serious implications for Canada's ability to pass environmental regulations and may even affect the way that Toronto disposes of its garbage.

An independent tribunal under the North American free-trade agreement ruled this week that Mexico must pay California-based Metalclad Corp. a total of $16.7-million (U.S.) as compensation for a Mexican municipality's refusal to allow the company to run a hazardous waste dump.

The decision is proof that NAFTA and the environment are at odds, and that municipalities will have a tough time turning away garbage if foreign corporations are involved, said Michelle Swenarchuk of the Canadian Environmental Law Association.

"NAFTA is saying, you can have your local rules for dumping, but if a foreign company wants to dump... it can force you to pay," Ms. Swenarchuk said yesterday. "This case is a terrible example of how necessary environmental controls can become near impossible for local communities."

For example, if the Canadian firm that plans to ship Toronto's garbage to Kirkland Lake, Ont., is bought by a U.S. firm, local authorities will have a difficult time restricting the foreign company even if they decide that Toronto's garbage would be unhealthy for the Kirkland Lake community, Ms. Swenarchuk said.

The NAFTA ruling is the first time an investor has successfully used the trade agreement to sue a foreign government for measures that amount to expropriation. Metalclad had asked the NAFTA tribunal for at least $113-million in damages, claiming that municipal authorities in Mexico essentially sabotaged their investment in a hazardous waste dump by denying them building permits.

"We won on every ground that we sued," said Metalclad's chief executive officer, Grant Kesler.

He claims the state governor in Mexico encouraged local people to protest against the American company and blocked the progress of Metalclad in an attempt to protect the Mexican monopoly on hazardous waste.

But Mr. Kesler added that he was disappointed that the NAFTA tribunal awarded him only a sixth of the damages he had asked for. Metalclad had sued for lost potential business, but the tribunal only awarded the company the value of the existing property in the state of San Luis Potosi, Mr. Kesler said.

But the Mexican government officials and witnesses involved in the case tell a different story.

They claim that Metalclad was allowed to buy the dump on the condition that it clean up a massive quantity of hazardous waste that was polluting the area. And when Metalclad changed its plans and said it wanted to expand the dump, people living in the area who had long opposed the dumping of hazardous waste there rebelled. Municipal permits were withdrawn as local people began to complain about their babies becoming sick.

"We're not talking about a minor problem here. We're talking about the same quantity of waste that was in the Love Canal issue," Hugo Perezcano, the Mexican government's chief lawyer on the case, said in an interview from Mexico City yesterday. "It's just sitting there."

The tribunal had nothing to say about the Mexican government's environmental concerns or the local opposition to Metalclad, Mr. Perezcano said. "That should raise concerns in the three NAFTA parties [Canada, the United States and Mexico]," he said.

The Mexican government says it will try to have the award set aside using a loophole in NAFTA that will let Mexico argue its case again before a neutral court -- in this case, the British Columbia court system.

A local environmentalist who was involved in the case, Pedro Medellin, was dejected about the loss.

"Nobody seems to care much what people think," he said from San Luis Potosi.

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